Dodd-Frank mortgage rule nears the finish line

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The FHA 203k loan program provides home buyers the opportunity to buy and fix up a property, without exhausting their personal savings.

Regulators will meet next week to decide on the final version of the much-delayed provision of the 2010 Dodd-Frank financial reform law.

Six regulators, including the Federal Reserve, the Federal Deposit Insurance Corp. and the Securities and Exchange Commission, will meet October 22 to adopt the final version of the credit risk retention rule, a requirement of the 2010 Dodd-Frank law to reform Wall Street.

The rule requires that lenders keep some risk on their books when they sell loans and is aimed at preventing defective loans from being bundles into securities and sold to investors unaware of the risks. Former Rep. Barney Frank, one of the Dodd-Frank law’s namesakes, called the rule “the single most important part” of the law.

But, Dodd-Frank, passed in 2010, has been unpopular in the mortgage industry, as it has brought about regulations many say are overly burdensome – including the “ability to repay” rule and various fee caps. Industry leaders say many of the new regulations place undue burden on originators and put mortgages out of reach for prospective borrowers who would have qualified under the old rules.

“Dodd-Frank is every bit as far-reaching in its harmful consequences for struggling Americans as Obamacare,” said House Financial Services Committee Chairman Jeb Hensarling. “Thanks to Dodd-Frank, it is harder for low and moderate income Americans to buy a home and there are fewer community banks serving the needs of families and small businesses. … Services that bank customers once took for granted like free checking are being eliminated due to the high costs of Dodd-Frank’s regulatory burden.”

After pushback from housing and real estate groups, regulators backed down and issued a new proposal last year. The new approach includes a broad exemption for issuers of mortgage-backed securities from having to retain a portion of the credit risk on their books.

The revised approach also features a no down payment requirement. Previously, regulators proposed that issuers of mortgage-backed securities would have to hold 5% of a loan’s risk unless borrowers put down at least 20%.